US: Wholesale Trade

Fri Mar 09 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Inventories - M/M change 0.7% 0.5% to 0.7% 0.8% 0.4% 0.7%

Inventories in the wholesale sector had not been keeping pace with sales which had been very strong and which helps to explain January's large 0.8 percent build. The gain compares with an advance estimate of 0.7 percent and a 0.7 percent build in December which is now revised 3 tenths higher.

Though sales in the wholesale sector have been strong, they fell back 1.1 percent in January which also helps explain the month's large build. The sales drop reflects a 1.4 percent drop in durables which included a 0.5 percent decline for autos where retail sales have been weak. The overall sales drop raises the sector's stock-to-sales ratio to 1.26 from 1.23 and points to less inventory building ahead.

But year-on-year inventories are still lean, up 4.8 percent for the sector vs a sales gain of 6.7 percent. And for January, today's build together with a preliminary build of 0.8 percent build for retailers and a 0.3 percent build in durables at manufacturers points to a fast start for the inventory component of first-quarter GDP.

Market Consensus Before Announcement
January wholesale trade inventories are expected to rise 0.7 percent in line with advance data which also rose 0.7 percent. Inventory build slowed in the fourth quarter but looks to be gaining renewed steam in the first quarter.

Wholesale trade measures the dollar value of sales made and inventories held by merchant wholesalers. It is a component of business sales and inventories.

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a slower rate of growth that won't lead to inflationary pressures. Wholesale sales and inventory data give investors a chance to look below the surface of the visible consumer economy. Activity at the wholesale level can be a precursor for consumer trends. In particular, by looking at the ratio of inventories to sales, investors can see how fast production will grow in coming months. For example, if inventory growth lags sales growth, then manufacturers will need to boost production lest product shortages occur. On the other hand, if unintended inventory accumulation occurs (i.e. sales did not meet expectations), then production will probably have to slow while those inventories are worked down. In this manner, the inventory data provide a valuable forward-looking tool for tracking the economy.